Pricing power to swing back to air and hotel suppliers in 2011: study

Oct 21, 2010

Pricing power is being tipped to swing back to air and hotel suppliers for the first time in two years in 2011 as more competition for limited seats on planes and increased occupancy levels at hotels are expected, according to the American Express Business Travel 2011 Forecast.

Published: 21 Oct 2010

Pricing power is being tipped to swing back to air and hotel suppliers for the first time in two years in 2011 as more competition for limited seats on planes and increased occupancy levels at hotels are expected, according to the American Express Business Travel 2011 Forecast.

Increases are expected up to 10% for airfare and hotel rates in key markets around the world.

Christa Degnan Manning, director of eXpert insights and research, American Express Business Travel, said, “Companies should re-examine programme strategies and policies undertaken in the past few years and look to manage budgets and cost-control tactics competitively to protect them from the significant rate increases expected.”

Pricing

Based on continued economic growth, increased demand, and constrained capacity, airfare and hotel rates are expected to grow up to high single digits in 2011, effectively bringing prices back to pre-recession levels. Asia is expected to lead pricing increases with established Western economies seeing less pricing expansion.

Manning said that even with the expected increases in rates, businesses can preserve travel budgets and efficiencies by staying knowledgeable about industry pricing trends, planning appropriately, and supporting travellers to make the best decisions of how to spend those dollars.

“For example, average daily rates of hotels are expected to rise above 10% in many locations in 2011, however, corporate negotiated rates will be lower as hoteliers compete for corporate loyalty business and lock in volume business commitments. Companies will likely forfeit a lot of savings when employees book outside preferred agreements and channels and end up paying consumer rates in 2011.”

North America

As a whole, North America has already experienced a significant rise in rates in 2010 with domestic airfares up 39% for business class and 21% for economy short-haul; therefore only modest increases in airfare rates are expected for 2011.

The hotel industry in North America is encountering higher occupancy levels and as suppliers look to regain loyalty among business customers and increase rates, average booked rates are expected to trend higher. Corporate negotiated rates will likely increase 1%- 5% for mid-range properties and 2%-6% for upper range hotels while non-negotiated average daily rates are expected to rise.

Car rental rates are projected to be flat or decline in 2011 by up to 2% resulting from strong competition in the industry coming out of the recession and excess inventory. However, higher cancellation charges and new taxes and fees could drive the actual price per trip higher.